The deal is much better for customers than what Arizona Public Service proposed previously, but solar industry representatives wanted more.
The Arizona Corporation Commission will hold public hearings on the agreement, and a vote is planned for this summer.
If it's approved, APS' 1.2 million customers would pay an average of $6 more a month.
The agreement between APS, solar lobbyists, and customer advocates also eliminates a mandatory demand-rate scheme that could have meant much higher bills for some customers.
Solar customers would have been particularly hurt by a mandatory demand rate, which would have based a customer's rate on the highest demand in a half-hour period during the month.
In addition, the agreement:
- Increases funding from $35 million to $48 million for a program that helps low-income people pay their power bills
- Grandfathers in all existing private solar customers at their current rates for the next 20 years
- Allows new rooftop solar customers to get paid close to the retail rate for the excess power they generate
- Creates two optional demand rates. For certain customers, this could mean money savings
- Creates a discounted "super off peak" time between 10 a.m. to 3 p.m. on winter weekdays
- Establishes a discount electricity rate for schools.
Rooftop customers now receive about 12.9 cents per kilowatt hour for the electricity their systems generate. The original deal would have reduced the purchase plan to 2.9 cents per kilowatt hour.
Without payments by the utility, or with payments that are too low, solar systems would be too expensive for most people to own.
After APS announced its plan, Patrick Jobin of Credit Suisse released a research report asserting that it would mean the end of solar installations in Arizona within a year.
Jobin estimated that the plan would shrink compensation for private solar users by 73 percent. System costs would have needed to decline by half to make solar-installation businesses profitable.
Solar companies had been gearing up to take their fight to court if APS didn't back off from its original plan.
Salt River Project, the second-largest electricity provider in metro Phoenix, added a mandatory demand-rate plan for solar customers in early 2015. The plan cut new solar installations in SRP territory by about half.
In December, the five-member Corporation Commission voted 4-1 to restructure compensation deals, also known as net metering, for solar customers.
The decision was based on a three-year study by commission staff that concluded that because of compensation payments, solar users don't pay their fair share of the electricity grid's cost of upkeep.
Solar advocates dispute that finding, claiming that rooftop solar customers generate enough electricity to reduce the need for future power plants, meaning they save non-solar customers money in the long run.
Nevada and Hawaii ended their net-metering programs more than a year ago. In September, Nevada officials moved to restore compensation payments, but only for existing customers.
Sean Gallagher, vice president of state affairs for the Washington, D.C.-based Solar Energy Industries Association, said the new proposal has several positive features.
Existing customers "are not going to get the rug pulled out from under them as they did in Nevada," he said. "Their investments are safe. They have the same value as they did before the deal."
"That was about as good a rate as you could have expected" following the December decision, Gallagher said.
If each year brought a lower compensation rate for new customers, the industry would survive because the cost of solar equipment and installations gets lower each year, he said.
However, the "troubling aspect" of the new agreement for solar businesses is that "we didn't get any certainty after 10 years," he added.
Other solar-energy advocacy groups expressed similar hope that the agreement, while not ideal, will allow the industry to keep thriving in Arizona.
"We were glad to arrive at a settlement that takes some steps to preserve customer choice, keeps solar customers on the same rates as other customers, and soundly rejects the idea of penalizing all residential customers with mandatory demand charges," Briana Kobor, an official with the Vote Solar advocacy group in California, said in a written statement.
"We look forward to putting the litigation stage behind and moving forward with all parties to expand clean energy access and provide new clean energy jobs in Arizona," wrote David Bender, staff attorney for Earthjustice in a statement.
"The agreement demonstrates what can be accomplished when people come together with a willingness to compromise and resolve complex policy issues," Don Brandt, APS chairman, president, and CEO, said in a statement published on APS' website.
APS says that 30 of the 40 stakeholders in the rate review process supported the agreement, including Corporation Commission staff, the Residential Utility Consumer Office, trade unions, senior citizens, limited-income advocates, environmental groups, schools, and "several" private rooftop solar organizations.